Shelved: How Wages and Working Conditions for California’s Food Retail Workers have Declined as the Industry has Thrived
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Shelved: How Wages and Working Conditions for California’s Food Retail Workers Have Declined as the Industry has Thrived is based on worker surveys, in-depth interviews with workers and employers, analysis of industry and government data, and reviews of existing academic literature. It represents the most comprehensive analysis ever conducted of California’s food retail industry.
The report shows that while California’s food retail industry has enjoyed consistent growth over the past two decades, the expansion of a low-price, low-cost business model – and the choices that traditional, unionized grocers have made in the face of it – have produced a dramatic wage decline, with high rates of poverty and hunger among workers in a sector that once enjoyed relatively high wages and unionization rates. The report calls for a two-pronged strategy to arrest and reverse these trends: support for unionization, and public policies that support livable wages and benefits. This strategy would promote the creation of good jobs in the food retail sector and help build long-term prosperity for California’s families and communities.
A. California’s Thriving Food Retail Industry and Expanding Low-Cost Model
California’s food retail industry has shown consistent and robust growth in sales and employment, with employment growing faster than in the economy overall. Between 2000 and 2011, the number of grocery stores in California – the largest segment of food retail establishments in the state– increased by 5%, from 9,893 to 10,403.1 California’s food retail industry paid workers $7.7 billion in 2011,2 and generated gross revenue of $98.2 billion in 2013.3 While grocery store jobs have grown faster than overall employment since the year 2000, general merchandise store jobs have grown much faster – almost tripling in number. From 1990 to 2012, general merchandise employment grew 176%, increasing from 41,000 employees to 113,100 employees, while overall employment grew by only 14%. Employment in grocery stores grew 23%, from 240,800 to 296,300.4 We estimate that there are now approximately 383,900 food retail workers in California.
General merchandise stores that sell food – particularly Wal-Mart, Target, and Costco – have captured a significant share of the grocery market. Wal-Mart currently commands approximately 3.8% of the grocery market in California.5 It faces significant competition from Target, which spent $500 million in 2010 expanding grocery operations across the U.S.6 Wal-Mart and Target follow a low-price, low-cost, anti-union business model that reduces quality and specialization, eliminating skilled positions such as bakers and meat cutters, as well as bakery, service deli, and meat clerks, thus flattening career ladders and leaving few opportunities for employee training and upgrading.7 Costco, which has captured a larger grocery market share than Wal-Mart and Target in California, operates with a higher wage, higher quality labor model.8 Nevertheless, Wal-Mart and Target’s low-cost model has impacted the behavior of many of California’s long-standing unionized grocery chains, which have cited Wal-Mart’s expansion as a competitive pressure that has forced them to pursue similarly low labor costs.9 These dynamics have been intensified by the simultaneous growth of non-union natural/organic/gourmet food stores, discount chains, and various specialty and ethnic markets, many of which are also pursuing a low-cost model.10 Numerous studies indicate that the growth of this low-cost model has created serious downward pressure on wages and working conditions industry-wide, and has shifted substantial costs onto taxpayers: 11 Thirty-six percent of California food retail workers use some form of public assistance according to government data, for a total annual cost to the state of $662 million.12
B. Declining Wages and Rising Poverty: As the Industry Grows, Paychecks Shrink
While California food retail industry employment has grown in the past decade, food retail workers’ wages have declined. According to Census data, in 2010 dollars, median hourly wages of grocery store workers – the largest segment of food retail workers – fell from $12.97 in 1999 to $11.33 in 2010, a decline of 12.6%.13 Moreover, the proportion of food retail workers earning poverty wages increased dramatically, from 43% in 1999 to 54% in 2010.14 This means that in 2010, more than half of all California food retail workers earned less than the hourly wage needed to reach an annual income of $22,458, the minimum income necessary to provide them with a low standard of living for a family of three in the Western U.S. if they worked full-time for the full-year (2,080 hours).15 While food retail workers’ median hourly wages declined drastically in the decade prior to 2010, overall private sector median hourly wages rose slightly, from $16 to $16.16 – an increase of 1%. As a result of these divergent trends, by 2010 the median hourly wage for grocery store workers had declined to about 70% of that earned by the California workforce overall. Similarly, while grocery store workers suffered a serious decline in weekly wages over this period, general merchandise workers experienced a slight weekly wage increase. As a result, by 2012, grocery store workers’ weekly wages, which were once much higher than those of general merchandise store workers, had fallen to nearly the same level.
Among grocery store workers, the weekly wage decline was much greater for full-time workers and unionized workers. In grocery stores, from 2000-2010, part-time workers’ weekly wages declined by 2.3% while full-time workers’ wages declined by 16.7%; similarly, non-union workers’ wages declined by 9.3% while union workers’ wages declined by 21.6%, thereby reducing the once even larger union wage advantage.
Nevertheless, government data indicate that union grocery store workers still earn about three dollars more per hour than non-union grocery store workers ($13.00 vs. $10.00) and are slightly more likely to work full-time hours (74% vs. 70%).16 Our survey data, reported below, indicate that even greater advantages, regarding both wages and other elements of job quality, arise from having a union.
During this same period, historically high unionization rates in food retail have declined dramatically. Figure 4 shows that California grocery store workers have more than double the unionization rate of general merchandise store workers (35% vs.17%), but that both groups of workers have experienced a decline in unionization rates over the last decade, while unionization rates in other industries remained fairly constant.
Figures 1 through 4 combined demonstrate three simultaneous trends. First, from 2000 to 2010, while the food retail industry as a whole was financially stable and experienced moderate job growth, general merchandise store jobs grew by nearly 200%. Second, over these years, the unionization rate among grocery store workers declined by almost one-quarter (22.2%). Third, during this decade, wages for grocery store workers dropped 12.6%, with full-time and unionized grocery store workers bearing the brunt of the wage decline. Notably, the overall decline in food retail workers’ wages from 2000-2010 cannot be attributed to an increase in lower-wage part-time work, which stayed relatively constant in the industry over that period.17
C. Pervasive Hunger: Grocery Workers Can’t Afford Enough to Eat
In surveys, workers reported a dramatic result of the wage decline described above: they now suffer double the rate of “low” and “very low” food security as the general U.S. population. In other words, workers who sell food in California, the largest producer of food in the U.S., are twice as likely as the general populace to be unable to afford sufficient quantities of the food they sell or the healthy kinds of food their families need, despite the financial health of the food retail industry.
D. It Still Pays to Be Union: The Significant Union Advantage
The responses of California food retail workers surveyed for this report demonstrate that despite declining standards in recent years, having a union still provides significant advantages in wages and working conditions. Unionized workers were far more likely to report earning wages above the poverty line and receiving promotions than non-unionized workers. Unionized workers also reported having paid sick days at almost double the rate of non-unionized workers, and were more than twice as likely as non-unionized workers to report having a lunch break as mandated by law.
One of the key areas in which having a union made a difference for food retail workers was with regard to health care coverage. Unfortunately, without further action by policymakers, some employers’ responses to the Affordable Care Act (ACA) – intended to cover the millions of uninsured workers across America – could negatively affect workers and shift health care costs onto the public. Several food retail stores, including
Wal-Mart, Target and Trader Joe’s have already dropped health plans for employees working less than 30 hours a week.18 The University of California, Berkeley Labor Center estimated that as many as 2.3 million workers nationwide might have their hours cut due to employer responses to the ACA.19 The workers most vulnerable to reductions in work hours linked to ACA implementation include those working 30-36 hours a week, with incomes below 400% of the federal poverty line and a lack of job-based coverage. Retail and restaurant workers account for nearly half of this most vulnerable group.20
E. Race Still Matters: Racial Inequities in Workers’ Treatment on the Job
Racial inequities also play a significant role in determining food retail workers’ wages and working conditions, especially in Los Angeles County, California’s most populous county. While government data indicate that Los Angeles County’s food retail workforce has racial demographics similar to those of the food retail workforce statewide (e.g. Latinos constitute 44% of grocery store workers statewide and 46% of grocery store workers in Los Angeles), worker surveys indicate that race is more of a determinant of working conditions in Los Angeles than statewide. In fact, the differential between workers of color (specifically Latinos and Blacks) and whites was fully 3 to 5 times greater in Los Angeles than in the statewide workforce with regard to workers being sent home early with no pay, having a shift canceled on the same day it is scheduled, not being offered a lunch break, and not being paid for all hours worked. We also found a statistically significant difference between white workers’ experiences with promotion and those of workers of color.
F. Investors Before Workers: “Financialization” Drives Standards Down
Analysts and advocates have focused on the growing share of retail food sales made by big-box merchandise stores such as Wal-Mart and Target as the driving factor in what has been seen as a near inevitable decline in unionization, wages, and working conditions. However, a closer look at the actions of traditional, unionized grocers shows that their own choices have played a large role in the decline of union density and standards.
- First, an ill-conceived merger in one of the state’s three major union groceries led to massive unionized grocery job loss at the same time that major job growth in the grocery sector occurred primarily in non-unionized discount/general merchandise stores (including but not limited to Wal-Mart and Target) and in natural/organic/gourmet markets.
- Second, while the three major unionized grocery chains – Kroger, Safeway, and Albertsons – have cited competition from growing general merchandise stores like Wal-Mart as the driver pressuring them to reduce wages and benefits, in fact these chains have chosen to spend large amounts of available cash on share repurchases, dividends, and debt repayment rather than higher wages and working conditions, and other strategic investments.
- Third, during this same period, higher wage, partially unionized Costco has gained significant market share in California, becoming the state’s largest food retailer and suggesting that California’s union sector is strongly positioned for future growth if union employers make different investments.
- Decline in Union Stores, Growth in Non-Union Stores
While unionization rates among California’s food retail workers dropped to 27% as of 2010-12,21 this figure vastly understates the portion of food sales in our state that is made by fully unionized grocers or by Costco, which universally pays its employees at or above union standards of wages and benefits. Based on the total dollar volume of food sales made by these stores, grocers meeting union standards of wages and benefits still made up more than 60% of our state’s food retail market as of 2013.22
Moreover, Wal-Mart and Target combined have failed to win major market share in California’s coastal areas where union grocers are most highly concentrated, making up less than 9% of the Los Angeles food retail market, and far less of both the San Francisco and San Diego markets.23 Researchers have posited that this relatively lesser rate of expansion can be attributed at least in part to significant protest from community groups and associations such as OUR Walmart that oppose Wal-Mart’s low-wage model.24 In these areas especially, the two low-cost leaders do not pose a large enough threat to serve as the sole explanation for the kinds of reductions in labor standards that union workers have suffered in recent years.
Three things deserve special attention when examining the decline in food retail workers’ wages and unionized grocery stores’ market share. First, more than half of the decline in union market share is attributable to the closings of stores belonging to a single chain, Albertsons, where significant indebtedness resulting from an ill-conceived 2006 merger reduced the company’s ability to invest in its store infrastructure or maintain competitive pricing.25 Second, union decline by market segment occurred almost entirely in traditional groceries while non-union growth occurred almost entirely in discount/general merchandise stores and natural/ organic/gourmet markets.26 Third, over the same period of wage and union decline (2000 to 2010), high wage, partially unionized employer Costco gained 2.5% in market share, making it California’s single largest food retailer, with 13.3% market share statewide.27 Costco’s success argues that growth strategies are not inherently incompatible with good jobs. Taken together with the two factors described above, it suggests further that California’s union grocery stores are strongly positioned for future growth if union employers make wise investments.
- How Union Grocers Have Chosen to Invest
Apart from the question of market share, some commentators have suggested that union grocers are unable to pay higher wages due to the industry’s relatively low net income margins. A more accurate measure of investor profit is return on invested capital, which typically is much higher.28 For example, over the past five years, the net profit margin for Kroger, one of the industry’s strongest players, has averaged just 1%, while during the same period its average return on invested capital was 10.6%.29
Over recent years, the industry has also experienced sustained growth in labor productivity, but workers’ increases in output have not always been matched by their increases in compensation, as indicated by Figure 7.30
As the cumulative result of these trends, over the course of the five years from 2008 through 2012, each of California’s three largest union grocery chains has generated billions of dollars in available cash flow.31
Despite facing the challenges of increased price competition and the expansion of new market segments, two of these union chains – Safeway and Albertsons – devoted the vast majority of their free cash flow to paying investors through share repurchases, dividends, and debt repayments. The third union chain – Kroger – devoted most of its free cash flow to capital improvements, but still joined the other major chains in reducing standards for its employees.32
Instead of allocating such large portions of free cash flow to investors, union grocery chains could have invested in growing and modernizing their businesses to capture more of California’s growing discount and organic market segments; invested more heavily in lower prices to be more price competitive; increased staffing and compensation levels at existing stores to improve customer service; or contributed greater amounts to the large underfunded pension and health care liabilities which the companies have accrued on workers’ behalf.33 To cite one egregious example of these companies’ misplaced priorities, from 2008-12, the value of Safeway’s share repurchases was more than 12 times the value of its pension contributions.34
In short, the recent behavior of these grocery chains illustrates the significant impact of financialization on the food retail sector, as the growing influence of financial market imperatives has both consumed resources that could have been allocated to workers and jeopardized the long-term market position and financial health of union employers.
A new round of financial speculation in California’s food retail industry is all but certain today as Safeway and Albertsons, the second and third largest union grocers in California, are pursuing a merger, in which Safeway shareholders will be bought out by Albertsons owner Cerberus, a New York-based private equity firm, in a deal valued at more than $9 billion and involving over $7 billion in debt.35 As the merger plays out, the actions of policymakers and workers’ advocates will have much to say about whether this buyout will simply repeat the bloodletting of the past, or whether smarter approaches can forge a new and better way forward.
G. Policy Recommendations
Our research demonstrates that the food retail industry, a large and rapidly growing sector of California’s economy, does not currently provide many of its hundreds of thousands of employees with livable wages and good opportunities to support themselves and their families. Unfortunately, the declining market share of union stores, the growth of non-union stores, and the financialization of the industry are all undermining employment standards for union and non-union workers alike. While improving wages, benefits, and working conditions will help responsible food retailers to ensure the long-term sustainability and profitability of their businesses, we cannot count on employers’ enlightened self-interest alone to stem the declining job standards of grocery workers. Both the expansion of collective bargaining and additional public policy measures are necessary to help the food retail industry fulfill its potential to provide quality jobs.
Most importantly, policymakers should:
- Raise wages for food retail workers. Food retail workers should not live in poverty and should be able to afford sufficient, healthy food to eat. Expanded collective bargaining would enable significant wage gains for food retail workers across the wage spectrum; increases in California’s and the federal minimum wage are required to lift the floor as well.
- Reduce incentives for employers to cut workers’ hours and pay poverty wages. Legislation requiring employers to pay appropriate penalties for all their employees who rely on publicly subsidized health care and other public assistance programs for low-income individuals and families would help close ACA loopholes and reduce employers’ incentives to cut workers’ hours and pay poverty wages. Additional legislation could help maximize the availability of full-time employment by requiring benefit parity for part-time workers and mandating that employers offer part-time incumbents increased hours in jobs for which they are qualified before hiring additional part-time workers.
- Publicly support organizing efforts among food retail workers, create a level playing field for unionized employers, and ensure the best use of taxpayer dollars by predicating government subsidies on the provision of quality jobs. Predicate the provision of taxpayer-funded financing, tax breaks, zoning assistance, Cal FreshWorks Fund loans, and other siting support for grocery stores on the provision of quality full-time jobs with livable wages and benefits, and ensure that agreements made by food retailers as a condition of receiving such support include strong penalties for retaliation against workers who seek to organize.
In addition, policymakers should:
- Enact legislation and enforce existing provisions to ease the hardships caused by workers’ lack of schedule control. Measures could include requiring minimum advance scheduling notice and setting a minimum number of hours of work, per week and per shift.
- Support job training programs that promote higher standards for the health and safety of food retail workers and consumers, while also helping all workers –and especially workers of color who disproportionately have been denied training opportunities – gain the skills needed for higher-wage jobs in the industry.
- Protect workers from violations of federal, state, and local wage and hour, health and safety, and equal employment opportunity laws.
- Establish a statewide standard that allows workers to earn seven to nine job-protected paid sick days each year to be used to recover from their own routine illness, access preventive care, or provide care for a sick family member.
- Initiate and support further academic and governmental study and dialogue about discrimination and other challenges faced by food retail workers, as well the true cost of the low-cost model to taxpayers and consumers, and the social and economic benefits of higher road alternatives.
This study of the California food retail industry was produced by Saru Jayaraman and the Food Labor Research Center of the University of California, Berkeley, in collaboration with the Food Chain Workers Alliance and University of California, Davis Professor Chris Benner, and commissioned by United Food and Commercial Workers (UFCW) Western States Council. It was guided by a National Advisory Board comprised of academics and advocates with expertise in the food retail sector and/or the topics covered in this report. The report focuses on data from 925 worker surveys, 20 in-depth interviews with workers, and 20 in-depth interviews with employers conducted in four regions of California: Los Angeles, Southern California outside of Los Angeles, the Bay Area, and the San Joaquin Valley. The data were collected over a nine-month period. This primary research was supplemented with analysis of industry and government data and reviews of existing academic literature.
- County Business Patterns, US Census 2011.
- California State Budget, 2013-14, California State Department of Finance. http://www.ebudget.ca.gov/
- California Labor Market Information Division, Employment Development Department 2013.
- Metro Market Studies California 2013 Grocery Distribution Analysis and Guide.
- Stephanie Clifford, “Big Retailers Fill More Aisles With Groceries,” The New York Times, January 16, 2011, http://www.nytimes.com/2011/
- Annette Bernhardt, “The Future of Low-Wage Service Jobs and the Workers That Hold Them,” IEE Brief no. 25 (1999).
- See for example Zeynep Ton, “Why ‘Good Jobs’ Are Good for Retailers,” Harvard Business Review Magazine(January-February 2012); “Out of Stock? It Might Be Your Employee Payroll – Not Your Supply Chain – That’s to Blame,” Knowledge@Wharton, April 04, 2007.
- John M. Broder, “California Supermarket Strike Deters Shoppers.” The New York Times, October 14, 2003, http://www.nytimes.com/2003/
10/14/us/california- supermarket-strike-deters- shoppers.html.
- Metro Market Studies California 2013 Grocery Distribution Analysis and Guide.
- Françoise Carré and Chris Tilly, “Continuity and Change in Low-wage Work in U.S. Retail Trade,” University of Massachusetts, Boston, Center for Social Policy, April 2008; Arindrajit Dube, T. William Lester, and Barry Eidlin, “A Downward Push: The Impact of Wal-Mart Stores on Retail Wages and Benefits,” UC Berkeley Labor Center Research Brief, December 2007, http://laborcenter.berkeley.
- UC Berkeley Labor Center calculations from 2008–2012 March CPS, 2007–2011 ACS, program administrative data.
- Annual Census, IPUMS.
- “Lower Income Standard Income Level Guidelines,” Employment and Training Administration, US Department of Labor, http://www.doleta.gov/llsil/
- Ibid. All comparisons in this section are statistically significant at p<.05.
- Current Population Survey-MORG 2000-02 and 2010-12.
- Claire O’Connor, “Target Joins Home Depot, Wal-Mart, Others In Cutting Health Care For Part-Timers, Citing Obamacare,” Forbes, January 22, 2014.
- “Which workers are most at risk of reduced work hours under the Affordable Care Act?” UC Berkeley Labor Center Data Brief, February, 2013.
- Current Population Survey-MORG 2010-12.
- The market share data presented in this section are derived from an analysis of the Metro Market Studies California 2006 and 2013 Grocery Distribution Analysis and Guides. Statewide market shares were computed based upon population weighted market shares of California metro markets which represent, in the aggregate, more than 95% of the state population. Store level unionization data was provided by the United Food and Commercial Workers.
- Metro Market Studies California 2013 Grocery Distribution Analysis and Guide.
- Paul Ingram, Lori Qingyuan Yue, and Hayagreeva Rao, “Trouble in Store: Probes, Protests, and Store Openings by Wal-Mart, 1998–2007,” American Journal of Sociology, Vol. 116, No. 1 (July 2010): 53-92.
- Paul Davidson, “Albertsons deal makes Supervalu No. 2 grocery chain,” USA Today, January 24, 2006, http://usatoday30.usatoday.
- During the period from 2006 to 2013, companies in both the union and non-union segments of the California food retail industry experienced market share growth, while other companies in each segment experienced market share losses. In the union segment a 3.5% market share gain among growing firms was eclipsed by a 15% market share loss by shrinking firms, resulting in a net market share loss of 11.6%. In the non-union segment, a 15.8% market share gain among growing firms was reduced by a 4.2% market share loss recorded by shrinking firms, resulting in a net market share gain of 11.6%. The discussion of the gain and loss in each segment presented in this section are based on an analysis of the gross market share gains and losses in each.
- Metro Market Studies California 2013 Grocery Distribution Analysis and Guide.
- Return on invested capital is different from net income margin (also known as return on sales) and measures the rate of profit as a percentage of invested capital. As opposed to return on sales which measures profit as a percentage of sales, return on invested capital measures the amount of profit generated for each dollar contributed by investors. Invested capital is defined as the sum of common equity, long-term debt, capital leases, and minority interest – in other words, the total of all claims on company assets.
- Most of the data presented in this section pertain to the consolidated financial statements of Kroger, Safeway and Supervalu, as no California specific data is available for these firms. However, in the case of at least one company (Safeway), equity research analysts have reported that profitability is higher in California than elsewhere in the US, and this level of profitability is expected to increase after the Cerberus acquisition of Safeway. (See Credit Suisse “Safeway Inc.: Upgrade to Outperform,” September 13, 2013; and Wolfe Research “Top Reasons SWY/Cerberus Makes Sense,” March 5, 2014.)
- Grocery Stores output per hour was calculated by dividing the Grocery Stores Value of Production by Grocery Stores Total Labor Hours. Value of Production was measured in 2002 dollars using the Grocery Stores Implicit Price Deflator. Grocery Stores compensation per hour was calculated by dividing Grocery Stores Labor Compensation by Grocery Stores Total Labor Hours. Labor Compensation was measured in 2002 dollars using the Consumer Price Index for Urban Wage Earners and Clerical Workers. All data is from the Bureau of Labor Statistics.
- Figures represent cumulative cash flow from operations for each company for the five year period from 2008 through 2012. (Source: S&P Research Insight)
- Cash flow figures here are adjusted as follows: Total adjusted cash flow is equal to cash flow from operations plus interest expense plus or minus the net change in cash so that “Cash invested in stores” plus “Cash paid to investors” is equal to 100% of adjusted operating cash flow. The percentages shown here represent the portion of cumulative adjusted cash flow over the 2008-2012 period allocated to investing activities (primarily capital expenditures) and financing activities (dividend payments, net share repurchases and net debt repayments) plus interest expense over the same five year period. (Source: S&P Research Insight)
- Both Safeway and Kroger enjoyed significant discretionary cash flow during this period, while Albertsons owner Supervalu struggled under the significant debt burden resulting from the 2006 merger. Therefore, Supervalu’s large allocation of cash to investors should be viewed less as a result of managerial discretion over the course of the 2008 to 2012 period than as a result of the earlier decision to dramatically leverage its balance sheet.
- S&P Research Insight.
- Cerberus entered the grocery business in 2006 in connection with the Supervalu acquisition of Albertsons Inc., which at that time was the second largest grocery chain in the US with approximately 2,500 stores. Supervalu, a publicly traded food wholesale distributor with a small retail operation, sought to boost its retail footprint with the Albertsons banners (including Albertsons, Acme Markets, Bristol Farms, Jewel-Osco, Shaw’s and Star Markets). However, over 600 of the Albertsons stores Supervalu did not want were sold to a Cerberus-led consortium, which ultimately sold off over two-thirds of the failing stores for their real estate value. In March of 2013, after struggling under the significant debt burden created by the 2006 Albertsons buyout, Supervalu sold all of the old Albertsons stores it still owned to the Cerberus investor group, along with the other Albertsons Inc. banners Supervalu still owned, nearly 900 stores in all.